5/22/25, 12:50 PM [ G.R. No. 190800.

November 07, 2018 ]

842 Phil. 819 ← click for PDF copy

SECOND DIVISION
[ G.R. No. 190800. November 07, 2018 ]
METROPOLITAN BANK & TRUST COMPANY, PETITIONER, VS.
FORTUNA PAPER MILL & PACKAGING CORPORATION,
RESPONDENT.
DECISION

REYES, A., JR., J.:

Challenged before this Court via this Petition for Review[1] under Rule 45 of the Rules of
Court is the Decision[2] dated July 7, 2009 of the Court of Appeals (CA) in CA-G.R. SP No.
102148, which dismissed the petition for review filed by petitioner Metropolitan Bank and
Trust Company (MBTC). Likewise challenged is the Resolution[3] dated January 4, 2010 of
the CA denying the Motion for Reconsideration likewise filed by MBTC.

In the said decision, the CA found no error in the assailed Order[4] dated December 20, 2007
of the Regional Trial Court (RTC) of Malabon City, Branch 74, in SEC Case No. S7-002-MN
granting the Petition for Corporate Rehabilitation of respondent Fortuna Paper Mill and
Packaging Corporation (Fortuna) considering the latter complied with the qualifications and
minimum requirements provided for under Rule 4, Sections 1 and 5 of the Interim Rules of
Procedure on Corporate Rehabilitation (Interim Rules).

The Antecedent Facts

MBTC is a domestic banking corporation organized and existing under the laws of the
Republic of the Philippines, and who extended various credit accommodations and loan
facilities to Fortuna. Fortuna, before the closure of its business and cessation of its operations
in 2006, was organized to manufacture special and craft papers from, waste and scrap
materials, and which it used to sell its products principally to manufacturers of corrugated
boxes, cement paper bags, and other stationary paper products.[5]

The credit accommodations and loan facilities extended by MBTC to Fortuna principally
amounted to Php 259,981,915.33. In order to secure these obligations, Fortuna mortgaged to
MBTC its real and movable properties as well as several pieces of realty owned by several
sister companies.[6]

Fortuna eventually ended up defaulting on its obligations to MBTC, and failed to pay said
indebtedness along with the interests and penalties despite repeated demands on the part of
MBTC. Around this same period, the Manila Electric Company (Meralco) filed a criminal
complaint against Fortuua for pilferage of electricity and cut off the latter's electrical supply.
Though Fortuna and Meralco eventually executed a compromise agreement that resulted in

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the reconnection of Fortuna's power supply, due to alleged dire financial straits and labor
problems, Fortuna subsequently and for the second time defaulted in its payments. This led
Meralco to once again disconnect Fortuna's supply of electricity, a turn of events which
persisted up until the time the petition was filed.[7]

Instead of paying the overdue obligations to MBTC, Fortuna filed on June 21, 2007 a
Petition for Corporate Rehabilitation (Rehabilitation Petition) with the RTC of Malabon,
Branch 74. Attached therein was Fortuna's proposed Rehabilitation Plan, which consisted
mainly of (i) the resumption and continuance of its business, to be made possible by the entry
of a supposed investor and a debt moratorium on principal interest, and (ii) entry into the
business condominium development.[8] The salient features of the proposed Rehabilitation
Plan are the following:

30.a) PROGRAM I – Restart and Continuance of Business of Fortuna with

Implementation of Specific Plans of Action – The general plan is to continue the
operation of Fortuna. These will be implemented with the following features:

(1) Entry of Investor for Fortuna. The of (sic) Policity (sic) Enterprises Ltd. of
Hongkong has been identified in buying into Fortuna.

(2) Debt moratorium on principal and interest for two years and debt restructuring
for a longer term or tenure and reduced interest rates. It is proposed that interest
rates for a certain period within the rehabilitation period be reduced.

It is proposed that interest rates for a certain period within the rehabilitation
period be reduced.

Thus, the Program I of the Rehabilitation Plan calls for the forbearance of the
creditors/bank to the longer payment period of eight (8) years with the provision
for acceleration of payment as cash becomes available from operation or from
investors. Reduction of interest rates to 2% on the first two years; then 4%
thereafter until the eight year is also an essential component of the Rehabilitation
Plan because:

1. Higher interest rates do not encourage the major stockholders to put in more
capital and take additional risks;
2. Reduction is customary in rehabilitation or liquidation proceedings when the
issue is self-preservation and survival of the debtor;
3. The reduced interest rates are reflective of a very reasonable remedial interest
rate;

With the relief from debt burdens and threats of paralyzing foreclosures by the
foregoing modifications of its debt-structure, and also as part of its rehabilitation
plan, FORTUNA shall implement the following key plans of action to bolster its
businesses; detailed as follows:

a. The entry of new investor shall pump in at least Php 70,000.000

into the Company; a communication identifying this new investor is
hereto attached as Appendix "B";

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b. The cash infusion shall be used principally to: (i) convert the
bunker-fired boiler to cheaper coal; (ii) purchase of raw materials; (iii)
operation of machines at or near maximum capacities; and (iv)
settlement of liabilities to Meralco to assure power supply.

30.b) PROGRAM II – Expansion to Other Businesses to Take Advantage of Best-

Use of Realty Assets – The Business Plan for the Rehabilitation of FORTUNA
has the general premise that the present business of the Petitioner will remain, and
in fact, will be expanded, considering that it is still viable.

The plans for additional or supplementary new businesses are hereby adopted
only to augment the old business and serve as a cushion in the event that there are
adverse environmental and business conditions that are not foreseen. This is also
being done to ensure that the settlement of all obligations will occur at the
programmed period of eight years or even shorter.

This supplementary business consists of developing some of the realty assets of

the Petitioner and/or its sister companies into love-rise (sic) or medium-rise
residential condominium under the Pag-IBIG City Program of the Home Mutual
Development Fund (Pag-IBIG). Under this Program, the Pag-IBIG shall purchase
the completed residential units at 70% of its appraised value and constitute the
developer as the marketing agent. This way, the payment to the contractor, who
shall complete the building on a turn-key basis, is assured.[9]

Finding the Rehabilitation Petition sufficient in form and substance, on June 27, 2007, the
RTC issued a Stay Order setting the initial hearing involving the Rehabilitation Petition on
August 6, 2007 and directing all of Fortuna's creditors and other interested parties to file their
verified comments/opposition.[10]

The court likewise ordered for the appointment of a rehabilitation receiver pursuant to Rule
4, Section 6 of the Interim Rules. On July 13, 2007, Atty. Rafael F. Teston (Atty. Teston)
accepted his appointment as rehabilitation receiver.[11]

On August 6, 2007, MBTC filed its Comment/Opposition[12] to the Rehabilitation Petition

and prayed for its dismissal based on the following grounds: (1) Fortuna was not qualified
for corporate rehabilitation under Section 1 of Rule 4 of the Interim Rules; (2) the petition
was fatally defective for non-compliance with the minimum requirements of Section 5 of
Rule 4 of the Interim Rules; and (3) the petition was filed solely for the purpose of unjustly
delaying the payment of its debt obligations.[13]

Despite opposition, the Rehabilitation Petition was given due course in an Order dated
September 20, 2007. The RTC thus referred the same to Atty. Teston for the latter's
evaluation and recommendations.[14]

After reviewing the same, Atty. Teston submitted a Rehabilitation Receiver's Report and
Comments to the Rehabilitation Plan (Receiver's Report), the said report recommending that
the proposed Rehabilitation Plan be adopted, but subject to the following timelines and

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benchmarks: (1) The prospective investor Polycity must complete its due diligence and begin
its infusion of new cash for MBTC within nine (9) months from approval of the
Rehabilitation Plan; and (2) The construction of the Classic Frames property must be
initiated within twelve (12) months from approval of the Rehabilitation Plan and completed
as set forth in the Plan.[15]

Ruling of the RTC

On the basis of this, the RTC issued an Order[16] dated December 20, 2007 approving the
Rehabilitation Plan. The trial court found the proposed Rehabilitation Plan feasible and
viable and noted Fortuna's effort to improve its financial standing by establishing a new
business of realty development in Malabon City. The RTC held:

With respect to the rehabilitation plan, the Court finds the same feasible and
viable. A moratorium period of two (2) years on the payment of its
loans/obligations will enable [Fortuna] to generate additional capital/funds to
continue its business operations. This is in line with [Fortuna's] intention to
source fund from its internal operations, the growth of which is expected to
favorably expand. To achieve this goal, an extension period for the payment of
[Fortuna] is just and proper. This is precisely the main reason why [Fortuna] filed
the instant petition as corporate rehabilitation can, in one way, be effected by
suspension of payments of obligation for a certain period. Thereafter, payment of
their loan/obligations could be ably resumed.

Further, the Court notes that [Fortuna] is in the process of establishing a new
business of realty development in Malabon City using the 13,000 square meters
property of its sister company, Classic Frames Corporation. Although the
proposed project site is, as correctly pointed out by [Fortuna], not feasible at this
time as it is inundated by flood during heavy rains, the on-going flood control
project being undertaken by the government (CAMANAVA Flood Control
Project) will solve this problem. As further pointed out by [Fortuna], residential
development in Malabon is a feasible and marketable project. The
Comprehensive Land Use Plan for the City of Malabon indicates that the
community requires a substantial housing for its residents of all income groups.
There is a housing deficiency of about 7,000 units for the lower-to-middle income
class economic segment. The development of a modern residential condominium
for the City's middle class priced at the level presented by the debtor is a welcome
addition to the community's housing inventory. The HMDF has projected that
such an inventory can be marketed easily. The realty company Oroquieta
Properties, Inc. is willing to consider and to participate as the developer-
contractor for the project. From this project, [Fortuna] expects to earn additional
income which is a good source of cashflow for its operations.[17]

The dispositive portion of the order reads:

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WHEREFORE, the Rehabilitation Plan filed with this Court and made as an
Annex and integral part of this Order is hereby APPROVED. Petitioners are
strictly enjoined to abide by its terms and conditions and they shall, unless
directed otherwise, submit a quarterly report on the progress of the
implementation of the Rehabilitation Plan. Further, and as prayed for, let the
construction of the Valenzuela property be initiated within the twelve (12) months
from this date and completed as set forth in the plan.[18]

Ruling of the CA

Aggrieved, MBTC filed a Petition for Review under Rule 43 with the CA seeking to set aside
the RTC's order. The CA dismissed the petition as it found that the rehabilitation was
feasible, and the opposition of the petitioning creditors was manifestly unreasonable.[19]

The dispositive portion of the Decision[20] dated July 7, 2009 reads, to wit:

WHEREFORE, premises considered, the petition for review is DISMISSED. The

Order dated 20 December 2007 of the [RTC], Branch 74, City of Malabon in SEC
Case No. S7-002-MN is AFFIRMED.

SO ORDERED.[21]

MBTC filed its Motion for Reconsideration to the decision of the CA, which was however
denied by the latter through a Resolution[22] dated January 4, 2010.

Hence, this Petition, wherein MBTC prays that this Court reverse and set aside the decision
of the CA and order the termination of the rehabilitation proceedings and the liquidation of
Fortuna.

The Issue and Contention of the Parties

A perusal of the pleadings filed by the parties will show that the overlying issue in this case
is whether or not the CA erred in affirming the Rehabilitation Plan approved by the RTC.
MBTC advocates that the CA is mistaken, and anchors its contentions on the belief that
Fortuna is not qualified to file a petition for rehabilitation under the Interim Rules.

MBTC argues that a corporation may petition that it be placed under rehabilitation only if it
is in the financial condition of a debtor who foresees the majority of its debts and its failure
to meet them. Thus, this element of foresight is allegedly wanting where a debtor has already
failed to meet its debts that have fallen due, such as in the case of Fortuna. The unequivocal
language of the provision, according to the interpretation of MBTC, shows the manifest
intent on the part of the drafters to make a distinction between debtors already in default and
those who are not, to the end that only the latter may petition to be placed under
rehabilitation, and which means that no exception or condition should be introduced save that
given expressly in the law.[23]
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MBTC also contends that, notwithstanding the question of eligibility of Fortuna, the CA
overlooked the many glaring and patent deficiencies of Fortuna's Rehabilitation Plan, which
include the alleged absence of material financial commitments to support it.[24]

On the other hand, Fortuna in its Comment to the Petition, argues that a cursory reading of
the Interim Rules reveals that MBTC's reading of the same is legally untenable and
restrictive, and that the salient provision merely indicates the minimum conditions for a
debtor to be able to file a Rehabilitation Petition.[25] As regards MBTC's contention that
Fortuna is not qualified for corporate rehabilitation, Fortuna points out the lower courts have
already determined that the Rehabilitation Plan is feasible, and that MBTC's objections to the
same is akin to substituting the latter's judgment over that of the court, in derogation of
Section 23, Rule 4 of the Interim Rules, reading to wit:

Sec. 23. Approval of the Rehabilitation Plan. - The court may approve a
rehabilitation plan even over the opposition of creditors holding a majority of the
total liabilities of the debtor if, in its judgment, the rehabilitation of the debtor is
feasible and the opposition of the creditors is manifestly unreasonable.

In determining whether or not the opposition of the creditors is manifestly

unreasonable, the court shall consider the following:

a. That the plan would likely provide the objecting class of creditors
with compensation greater than that which they would have received
if the assets of the debtor were sold by a liquidator within a three-
month period; x x x.

To this, MBTC reiterates in its Reply to the Comment of Fortuna that Section 1, Rule 4 is
clear and unambiguous and not susceptible of the interpretation that even defaulting debtors
such as Fortuna may file a Rehabilitation Petition. MBTC pleads its view that rehabilitation
is intended to aid distressed but still viable corporations to the end that they may be able to
get back to their feet again and resume operations.[26]

As a creditor, MBTC behooves this Court to overrule the CA as "the rationale behind
corporate rehabilitation must be upheld at all times and must not be allowed to be abused and
misused by corporations whose aim is solely to thwart the enforcement of legal rights by a
creditor, and that the creditor must not be put into a situation where it would have to wait for
a miracle to happen while watching the assets of the debtor slowly dissipating and losing
their values."[27]

This Court takes notice that on September 24, 2018, MBTC filed a Compliance and Motion
to Dismiss[28] with this Court, informing this Court that the rehabilitation proceedings have
allegedly already been rendered moot by the following supervening events, to wit: First, that
the rehabilitation proceedings in SEC Case No. S7-002-MN entitled "In Re: Corporate
Rehabilitation Fortuna Paper Mills and Packaging Corporation" subject of the present
petition, was already terminated by the RTC in its Order[29] dated November 21, 2011.

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Second, that the CA affirmed said order in a Decision[30] promulgated on August 30, 2013.
Third, that Fortuna initially filed a motion for reconsideration to assail the CA's decision, but
submitted a Motion to Withdraw[31] the same on February 18, 2014. Fourth, that the CA
promulgated a Resolution[32] on April 30, 2014 granting the Motion to Withdraw, hence, that
the Decision dated August 30, 2013 of the CA in CA-G.R. SP No. 124062, which affirmed
the Order dated November 21, 2011 of the RTC in SEC Case No. S7-002-MN which
declared the rehabilitation proceedings as deemed terminated.

To wit, the RTC's decision terminating the rehabilitation proceedings reads, to wit:

WHEREFORE, finding the proposed amended rehabilitation plan inadequate to

convince the Court that petitioner can be rehabilitated and restored to its former
position of successful operation, the motion to admit amended rehabilitation plan
is DENIED.

For failure to implement the approved eight[-]year rehabilitation plan for four
years, the motion to terminate rehabilitation proceedings is GRANTED.

The rehabilitation receiver's report for November 2011 is NOTED and he is

directed to render his final accounting within a period of thirty days from notice.

This rehabilitation proceeding is forthwith deemed TERMINATED.

Accordingly, the Stay Order issued in this case is LIFTED, and is now functus
oficio.

SO ORDERED.[33]

As a result of the foregoing, MBTC belatedly prays that this petition be dismissed in view of
the supervening event ergo the termination of the rehabilitation proceedings, rendering the
case moot and academic.

Ruling of the Court

In legal parlance, a case is considered moot when it ceases to present a justiciable

controversy by virtue of supervening events, and as a rule, courts decline jurisdiction over
such a case, or dismiss it on ground of mootness.[34]

The reasoning behind the dismissal of a case for being declared moot and academic is clear.
Especially for pragmatic reasons, courts will not determine a moot question in a case in
which no practical relief can be granted. It is deemed unnecessary to indulge in an academic
discussion of a case presenting a moot question as a judgment thereon cannot have any
practical legal effect or, in the nature of things, cannot be enforced.[35]

The RTC's Order dated November 21, 2011 terminating the rehabilitation proceedings
effectively puts an end to the judicial controversy between the parties. Nonetheless, this
Court still considers it necessary to touch on the question of whether or not a corporation in

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debt may qualify for coiporate rehabilitation, Fortuna in this case, despite the finding of the
lower court, belatedly brought to this Court's attention. Ruling on the merits despite a ruling
of the lower court rendering the case moot and academic, is not novel. In Rep. of the Phils, v.
Manila Electric Co. (Meralco), et al.,[36] despite the intervening rendition of the trial court's
decision on the merits of the case therein, the Court considered it necessary to still deal with
the contentions of the petitioner, in the interest of upholding the observations of the CA on
the propriety of the actions of the trial court, which the Court reasoned would be instructive
for the Bench and the practicing Bar.

This Court finds that the issues brought to fore go beyond the facts presented and delve into
important questions of law, questions that will continue to crop up considering the
importance and regularity of rehabilitation proceedings. As a matter of pragmatism, this
Court notes that Fortuna has several creditors[37] aside from MBTC, and an adjudication on
the substantial merits as presented in this petition will serve as a guide for the conduct of the
rehabilitation proceedings, not only in terms of the validity of the rehabilitation proceeding
itself, but even if Fortuna is in fact qualified to file for corporate rehabilitation in the first
place.

Fortuna is qualified to file for

corporate rehabilitation.

Rehabilitation refers to the restoration of the debtor to a condition of successful operation

and solvency, if it is shown that its continuance of operation is economically feasible and its
creditors can recover by way of the present value of payments projected in the plan, more if
the debtor continues as a going concern than if it is immediately liquidated.[38]

Section 1, Rule 4 of the Interim Rules on the Procedure on Corporate Rehabilitation provides
for the qualifications of a corporation to file a petition for corporate rehabilitation, to wit:

Sec. 1. Who May Petition. - Any debtor who foresees the impossibility of
meeting its debts when they respectively fall due, or any creditor or creditors
holding at least twenty-five percent (25%) of the debtor's total liabilities, may
petition the proper Regional Trial Court to have the debtor placed under
rehabilitation. (Emphasis Ours)

A plain reading of the provision shows that the Interim Rules does not make any distinction
between a corporation which is already in debt and a corporation which foresees the
possibility of debt, or which would eventually yet surely fall into the same, but may at
present be free from any financial liability. Thus, since the statute is clear and free from
ambiguity, it must be given its literal meaning and applied without attempted interpretation.
This is the plain meaning rule or verha legis, as expressed in the maxim index animi sermo or
speech is the index of intention.[39]

In Philippine Bank of Communications v. Basic Polyprinters and Packaging Corporation,[40]

the Court underscored that despite the insolvency of a corporation, it cannot be hindered to
file a petition for corporate rehabilitation. To conclude otherwise will defeat its purpose of
restoring a corporation to its former position of successful operation and solvency.[41]

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Upon cursory reading of the report and recommendation of Atty. Teston, it can be seen that
Fortuna maintains a status of solvency, having more assets than its liabilities with a Php
71,000,000.00 margin.[42] However, even hypothetically granting that Fortuna is already in a
state of insolvency, the Court finds that is not precluded from filing its Rehabilitation Petition
to facilitate its restoration to its former busines's stability. Fortuna is seeking a fresh start to
lift itself from its present financial predicament. Thus, the foreseen viable rehabilitation of
Fortuna would be more advantageous to the business community and its creditors rather than
proceed with its liquidation which may possibly lead to its eventual corporate death.

This Court need not distinguish whether the claim has already matured or not. What is
essential in case of rehabilitation is the inability of the debtor corporation to pay its dues as
they fall due. In the case herein, accepting MBTC's proposition that debtor companies
already in default are unqualified to file a petition for corporate rehabilitation not only
contradicts the purpose of the law, as stated, but also advocates a limiting bar that is not
found under the pertinent provisions. A better and more sound interpretation adheres to the
very purpose of corporate rehabilitation, which is to allow the debtor-corporation to be
restored "to a position of successful operation and solvency, if it is shown that its
continuance of operation is economically feasible and its creditors can recover by way of the
present value of payments projected in the plan."[43]

Under the doctrine of stare decisis, it

has already been held that a
corporation in debt may petition for
corporate rehabilitation.

Relevantly and crucially, the Court has already categorically ruled that a corporation with
debts that have already matured may still file a petition for corporate rehabilitation under the
Interim Rules. In Metropolitan Bank and Trust Company v. Liberty Corrugated Boxes
Manufacturing Corporation,[44] therein respondent Liberty Corrugated Boxes Manufacturing
Corporation (Liberty), the sister company of Fortuna in the present case, filed its own
petition for corporate rehabilitation which was subsequently approved, despite opposition
from MBTC, likewise the petitioner herein. The petition for corporate rehabilitation in the
Liberty case consisted of grounds similarly raised by Fortuna such as a debt moratorium,
renewal or marketing efforts, resumption of operations and entry into condominium
development.

Arriving at the same conclusion as in the trial court proceedings herein, the RTC found the
petition to be sufficient in form and substance, and subsequently approved Liberty's
rehabilitation plan as it found that Liberty was still capable of rehabilitation.[45]

On subsequent appeal to the Court, MBTC argued that Liberty can no longer file a petition
for corporate rehabilitation pursuant to Section 1 of Rule 4 of the Interim Rules since MBTC
believed that the provision restricts the kind of debtor who could petition to only those "who
foresees the impossibility of meeting its debts when the respectively fall due."[46] Liberty,
being already in default in its obligations, allegedly no longer fell within the ambit of the
provision. Furthermore, MBTC asserted that the rehabilitation lacked the requisite material
financial commitment required under Section 5 of Rule 4 of the Interim Rules.

Ruling favorably, the Court granted Liberty's petition concluding that a corporation may file

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for rehabilitation despite having defaulted on its obligations to the petitioners.[47] The Court
stated:

As stated by the CA in Philippine Bank of Communications, rehabilitation is in

line with the State's objective to promote a wider and more meaningful equitable
distribution of wealth.

In line with this objective, the Interim Rules provide for a liberal construction of
its provisions:

RULE 2
Definition of Terms and Construction

xxxx

SECTION 2. Construction. - These Rules shall be liberally construed

to carry out the objectives of Sections 5(d), 6(c) and 6(d) of
Presidential Decree No. 902-A, as amended, and to assist the parties in
obtaining a just, expeditious, and inexpensive determination of cases.
Where applicable, the Rules of Court shall apply suppletorily to
proceedings under these Rules.

xxxx

There is no reason why corporations with debts that may have already matured
should not be given the opportunity to recover and pay their debtors in an orderly
fashion. The opportunity to rehabilitate the affairs of an economic entity,
regardless of the status of its debts, redounds to the benefit of its creditors,
owners, and to the economy in general. Rehabilitation, rather than collection of
debts from a company already near bankruptcy, is a better use of judicial rewards.

xxxx

Thus, the condition that triggers rehabilitation proceedings is not the

maturation of a corporation's debts but the inability of the debtor to pay
these.

Where the law does not distinguish, neither should this Court. Because the
definition under the Interim Rules is encompassing, there should be no distinction
whether a claim has matured or otherwise.

Petitioner's proposed interpretation contradicts provisions of the Interim Rules,

which contemplate situations where a debtor corporation may already be in
default. As correctly pointed out by respondent, a creditor may possibly petition
for the debtor's rehabilitation for default on debts already owed.[48] (Citations
omitted and emphasis and underscoring Ours)

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Thus, considering the question of law whether or not a corporation already in debt may file a
petition for rehabilitation, in the Liberty case, is identical to that posited by MBTC in the
case herein, the Court is behooved to dismiss the petition as the doctrine of stare decisis finds
full application. Time and again, the Court has held that it is a very desirable and necessary
judicial practice that when a court has laid down a principle of law as applicable to a certain
state of facts, it will adhere to that principle and apply it to all future cases in which the facts
are substantially the same. Stare decisis et non quieta movere. Stand by the decisions and
disturb not what is settled.

As defined and discussed in Hon. Jonathan A. Dela Cruz and Hon. Gustavo S. Tambunting,
as Members of the House of Representatives and as Taxpayers v. Hon. Paquito N. Ochoa Jr.,
in his Capacity as the Executive Secretary; Hon. Joseph Emilio A. Abaya, in his Capacity as
the Secretary of the Department of Transportation and Communications; Hon. Florencio B.
Abad, in his Capacity as the Secretary of the Department of Budget and Management; and
Hon. Rosalia V. De Leon, in her Capacity as the National Treasurer:[49]

Stare decisis simply means that for the sake of certainty, a conclusion reached in
one case should be applied to those that follow if the facts are substantially the
same, even though the parties may be different. It proceeds from the first
principle of justice that, absent any powerful countervailing considerations, like
cases ought to be decided alike. Thus, where the same questions relating to the
same event have been put forward by the parties similarly situated as in a
previous case litigated and decided by a competent court, the rule of stare decisis
is a bar to any attempt to relitigate the same."[50]

There is no compliance with the

minimum requirements under
Section 5 of Rule 4 of the Interim
Rules

Despite this Court's finding that Fortuna may petition for court rehabilitation, being qualified
to do does not mean that such a petition will automatically be validated.

While to delve into the material incidents of the Rehabilitation Plan would require a
painstaking review of the sufficiency and weight of evidence presented by the parties, ergo, a
review of the facts, this Court believes that exceptions under law are present to allow a closer
look at the evidence on record. The Court as a general rule reviews questions of fact only if
the petition shows any, some, or all of the following:

a. The conclusion of the [CA] is grounded entirely on speculations, surmises and

conjectures;

b. The inference made is manifestly mistaken, absurd or impossible;

c. There is a grave abuse of discretion;

d. The judgment is based on misapprehension of facts;

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e. The findings of facts are conflicting;

f. The [CA], in making its findings, went beyond the issues of the case and the
same is contrary to the admissions of both appellant and appellee.

g. The findings of fact of the [CA] are contrary to those of the trial court;

h. The findings of fact are conclusions without citation of specific evidence on

which they are based;

i. The facts set forth in the petition, as well as in the petitioner's main and reply
briefs, are not disputed by respondents; or

j. The findings of fact of the [CA] are premised on the supposed absence of
evidence and contradicted by the evidence on record.[51]

In this case, the Court finds that the lower courts based their findings on a misapprehension
of facts, facts that would very clearly show that the lack of feasibility in the Rehabilitation
Plan as well as the infirmities in the same. Due to this, this Court holds that the CA
committed grave abuse of discretion that warrants the reversal of its decision on the apparent
validity of the Rehabilitation Plan.

To note, the test[52] in evaluating the feasibility of the plan was laid down in Bank of the
Philippine Islands v. Sarahia Manor Hotel Corporation (Bank of the Philippine Islands,[53]
to wit:

In order to determine the feasibility of a proposed rehabilitation plan, it is

imperative that a thorough examination and analysis of the distressed
corporation's financial data must be conducted. If the results of such examination
and analysis show that there is a real opportunity to rehabilitate the corporation in
view of the assumptions made and financial goals stated in the proposed
rehabilitation plan, then it may be said that a rehabilitation is feasible. In this
accord, the rehabilitation court should not hesitate to allow the corporation to
operate as an on-going concern, albeit under the terms and conditions stated in the
approved rehabilitation plan. On the other hand, if the results of the financial
examination and analysis clearly indicate that there lies no reasonable
probability that the distressed corporation could be revived and that
liquidation would, in fact, better subserve the interests of its stakeholders,
then it may be said that a rehabilitation would not be feasible. In such case,
the rehabilitation court may convert the proceedings into one for liquidation.[54]
(Emphasis Ours)

In the recent case of Phil. Asset Growth Two, Inc., et al. v. Fastech Synergy Phils., Inc., et al.,
[55] the Court took note of the characteristics of feasible rehabilitation plan as opposed to an
infeasible rehabilitation plan, as follows:

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Professor Stephanie V. Gomez of the University of the Philippines College of

Law suggests specific characteristics of an economically feasible rehabilitation
plan:

a. The debtor has assets that can generate more cash if used in its daily operations
than if sold.

b. Liquidity issues can be addressed by a practicable business plan that will

generate enough cash to sustain daily operations.

c. The debtor has a definite source of financing for the proper and full
implementation of a Rehabilitation Plan that is anchored on realistic assumptions
and goals.

These requirements put emphasis on liquidity: the cash flow that the distressed
corporation will obtain from rehabilitating its assets and operations. A
corporation's assets may be more than its current liabilities, but some assets may
be in the form of land or capital equipment, such as machinery or vessels.
Rehabilitation sees to it that these assets generate more value if used efficiently
rather than if liquidated.

On the other hand, this court enumerated the characteristics of a rehabilitation

plan that is infeasible:

a. the absence of a sound and workable business plan;

b. baseless and unexplained assumptions, targets and goals;

c. speculative capital infusion or complete lack thereof for the execution of the
business plan;

d. cash flow cannot sustain daily operations; and

(e) negative net worth and the assets are near full depreciation or fully
depreciated.[56] (Citation omitted)

Taking all these points into consideration, among others, in the case of Fortuna, the Court
disagrees with the finding of the lower courts that the Rehabilitation Plan is one that is
economically feasible for several reasons.

First, the Rehabilitation Plan is primarily premised on speculative investments and the lack
of material financial commitments. In Fastech, the Court stated that 'nothing short of legally
binding investment commitment/s from third parties is required as a material financial
commitment. To wit:

A material financial commitment becomes significant in gauging the resolve,

determination, earnestness, and good faith of the distressed corporation in
financing the proposed rehabilitation plan. This commitment may include the
voluntary undertakings of the stockholders or the would-be investors of the
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debtor-corporation indicating their readiness, willingness, and ability to

contribute funds or property to guarantee the continued successful operation of
the debtor-corporation during the period of rehabilitation. x x x Case law holds
that nothing short of legally binding investment commitment/s from third parties
is required to qualify as a material financial commitment. x x x Here, no such
binding investment was presented.[57]

The following proposals and commitments as found in the Rehabilitation Plan show the lack
of any legally binding investment:[58]

30.a) PROGRAM I – Restart and Continuance of Business of Fortuna with

Implementation of Specific Plans of Action – The general plan is to continue the
operation of Fortuna. These will be implemented with the following features:

(1) Entry of Investor for Fortuna. The of (sic) Policity (sic) Enterprises
Ltd. of Hongkong has been identified in buying into Fortuna.

(2) Debt moratorium on principal and interest for two years and debt
restructuring for a longer term or tenure and reduced interest rates. It
is proposed that interest rates for a certain period within the
rehabilitation period be reduced.

xxxx

With the relief from debt burdens and threats of paralyzing foreclosures by the
foregoing modifications of its debt-structure, and also as part of its rehabilitation
plan, FORTUNA shall implement the following key plans of action to bolster its
businesses; detailed as follows:

c. The entry of new investor shall pump in at least Php 70,000.000

into the Company; a communication identifying this new investor is
hereto attached as Appendix "B";

d. The cash infusion shall be used principally to: (i) convert the
bunker-fired boiler to cheaper coal; (ii) purchase of raw materials; (hi)
operation of machines at or near maximum capacities; and (iv)
settlement of liabilities to Meralco to assure power supply.

30.b) PROGRAM II – Expansion to Other Businesses to Take Advantage of Best-

Use of Realty Assets – The Business Plan for the Rehabilitation of FORTUNA
has the general premise that the present business of the Petitioner will remain, and
in fact, will be expanded, considering that it is still viable.

The plans for additional or supplementary new businesses are hereby adopted
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only to augment the old business and serve as a cushion in the event that there are
adverse environmental and business conditions that are not foreseen. This is also
being done to ensure that the settlement of all obligations will occur at the
programmed period of eight years or even shorter.

This supplementary business consists of developing some of the realty assets of

the Petitioner and/or its sister companies into love-rise (sic) or medium-rise
residential condominium under the Pag-IBIG City Program of the Home Mutual
Development Fund (Pag-IBIG). Under this Program, the Pag-IBIG shall purchase
the completed residential units at 70% of its appraised value and constitute the
developer as the marketing agent. This way, the payment to the contractor, who
shall complete the building on a turn-key basis, is assured.[59]

It is clear from a perusal of the Rehabilitation Plan that the process is heavily, if not
completely predicated on speculative business proposals as well as the contingent entry of
the potential foreign investor, Polycity. It is emphasized that the entry of Polycity is wholly
predicated on conditions imposed on Fortuna by the former, as seen in the letter of Polycity,
which reads to wit:

Gentlemen:

We write to express our intention to acquire 50% or more of the issued capital
stock of Fortuna Paper Mills & Packaging Corporation (Fortuna), which we
understand is being sold. This letter serves notice to you being the sole financial
creditor of Fortuna.

Our offer to purchase shall be subject to the following conditions: (i) grant of
an exclusivity period of ninety (90) days during which period Fortuna shall not
entertain any other offers from possible purchasors, but shall allow us to
conduct due diligence and undertake other activities related to the possible
acquisition of Fortuna's sticks; (ii) the conduct of financial, operational, legal and
technical due diligence which yield satisfactory results to be completed within
sixty (60) days of Fortuna's acceptance of this letter (iii) acceptable
documentation of the acquisition; and (iv) Fortuna's compliance with any
conditions precedent to such acquisition.

The Letter of Intent submitted to Fortuna does not constitute a binding a

commitment on either party with respect to any transaction and is not intended to
be and does not constitute a legal binding obligation. No legal binding obligations
will be created, implied or inferred until and unless a definitive agreement is
executed and delivered by the parties.

We will be sending over to Manila our representatives over in the immediate

coming weeks to negotiate with the owners of Fortuna and to meet with the
authorized representatives of Metropolitan Bank. We hope to introduce ourselves
in person and to discuss other matters involving Fortuna.

Yours,

Anthony Sher[60]
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The aforecited transaction is not the viable and realistic option that complies with the
minimum requirements of the Interim Rules. Critically, to this date, there is also no showing
on the part of Fortuna that the company was able to comply with the conditions that would
result in Polycity investing in the former. In fact, Fortuna subsequently filed a Motion to
Amend Rehabilitation Plan dated March 5, 2009[61] almost two (2) years after the filing of
the Rehabilitation Plan, stating that the investment of Polycity did not push through,
necessitating the entry of Fortuna in the real estate business, to wit:

That unfortunately, it is unable to come up with the payments in the first year of
Rehabilitation, due to the following reasons:

a. The Rehabilitation Plan requires the infusion of Php70 Million from investor
POL[Y]CITY. The current financial crisis, however, has compelled the investor to
review its investment programs in this part of the world.

b. That it is now necessary to raise on its own the funds required to initiate the
operations of the plant.

xxxx

The approved Plan calls for the entry of the Petitioner in real estate business. The
first phase of thus business is the construction of a six-storey condominium at the
1.3 Hectare property of its sister company Classic Frames Inc. at Malabon, Metro
Manila. This project is expected to result in a net profit of Php 277 Million.[62]

Even setting aside that the entry into real estate business is general and cannot constitute a
surefire way to obtain assets to eventually pay of its creditors, Fortuna has failed to persuade,
not only because on its surface the Rehabilitation Plan is riddled with potholes, but also
because the facts of the case show that its initial attempts at currying investors have already
failed, which has in fact been the basis for the 2011 decision of the RTC in terminating the
rehabilitation proceedings. Fortuna was unable to show proof of feasibility turning into
actuality as regards its proposal that would warrant the return of confidence that the
continuation of Fortuna's corporate life and activities would achieve solvency, or a position
where it would be able to pay its obligations as they fall due in the ordinary course of
business. Even in its subsequent pleadings, Fortuna failed to show any positive development
which would assuage any doubts.

Even Fortuna's mention of the joint-venture agreement with Oroquieta Properties, Inc. (OPI)
in its Comment to the Petition[63] as a viable means for feasibility, is based on contingency
and is far from a sure thing. While Fortuna alleges that it has already moved ahead of the
realty development aspect of the Plan and that the architectural plans have already been
prepared by OPI and submitted to the Home Development Mutual Fund for assessment,
Fortuna itself admits that this is subject to the condition that OPI is willing to participate only
as soon as the legal issues of rehabilitation is resolved.[64] It is clear that this substitute
investment also has the taint of uncertainty that certainly deprives the Rehabilitation Plan of
the requisite feasibility under the law, and thus, this Court must rule as to its invalidity
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especially as holding otherwise would go against the purpose of corporate rehabilitation and
the protection of creditors.

In Viva Shipping Lines, Inc. v. Keppel Phils. Marine, Inc., et al.,[65] the Court emphasized the
very definition and dictated purposes of corporate rehabilitation, as a remedy effected not
just for the problematic corporation, but also for the creditors and other stakeholders:

Corporate rehabilitation is a type of proceeding available to a business that is

insolvent. In general, insolvency proceedings provide for predictability that
commercial obligations will be met despite business downturns. Stability in the
economy results when there is assurance to the investing public that obligations
will be reasonably paid. It is considered state policy to encourage debtors, both
juridical and natural persons, and their creditors to collectively and realistically
resolve and adjust competing claims and property rights[.] x x x [Rehabilitation or
liquidation shall be made with a view to ensure or maintain certainty and
predictability in commercial affairs, preserve and maximize the value of the
assets of these debtors, recognize creditor rights and respect priority of claims,
and ensure equitable treatment of creditors who are similarly situated. x x x The
rationale in corporate rehabilitation is to resuscitate businesses in financial
distress because "assets x x x are often more valuable when so maintained than
they would be when liquidated." Rehabilitation assumes that assets are still
serviceable to meet the purposes of the business. The corporation receives
assistance from the court and a disinterested rehabilitation receiver to balance the
interest to recover and continue ordinary business, all the while attending to the
interest of its creditors to be paid equitably. x x x.

xxxx

Philippine Bank of Communications v. Basic Polyprinters and Packaging

Corporation reiterates that courts "must endeavor to balance the interests of all
the parties that had a stake in the success of rehabilitating the debtors." These
parties include the corporation seeking rehabilitation, its creditors, and the public
in general. x x x Clearly then, there are instances when corporate rehabilitation
can no longer be achieved. When rehabilitation will not result in a better present
value recovery for the creditors, the more appropriate remedy is liquidation.

It does not make sense to hold, suspend, or continue to devalue outstanding

credits of a business that has no chance of recovery. In such cases, the optimum
economic welfare will be achieved if the corporation is allowed to wind up its
affairs in an orderly manner. Liquidation allows the corporation to wind up its
affairs and equitably distribute its assets among its creditors.[66]

The rationale behind corporate rehabilitation must be upheld at all times and must not be
allowed to be abused and misused by corporations whose aim is solely to thwart the
enforcement of legal rights by a creditor, in this case, the Rehabilitation Plan which
absolutely lacks feasibility and the lack of any abuse appurtenant to the provisions therein.
Perhaps the best indicator that the Rehabilitation Plan was doomed to fail from the start was
the very proclamation of the trial court declaring it as such and thus terminating the
rehabilitation proceedings, a belated yet crucial development which rendered the issues in
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this case moot and academic.

WHEREFORE, the petition is DISMISSED for being moot and academic.

SO ORDERED.

Carpio, (Chairperson), and Caguioa, JJ., concur.

Perlas-Bernabe, J., see concurring opinion.
J. Reyes, Jr., J.,* on wellness leave.

*On wellness leave. Designated as Acting Member per Special Order No. 2587 dated August
28, 2018.

[1] Rollo, pp. 3-8.

[2]Penned by Associate Justice Arturo G. Tayag, with Associate Justices Noel G. Tijam (now
a Member of this Court) and Normandie B. Pizarro concurring, id. at 39-66.

[3] Id. at 84.

[4] Rendered by Assisting Judge Leonardo L. Leonia; id. at 226-228.

[5] Id. at 13.

[6] Id.

[7] Id.

[8] Id. at 14.

[9] Id. at 14-15.

[10] Id. at 16.

[11] Id. at 45.

[12] Id. at 170-179.

[13] Id. at 45.

[14] Id. at 17.

[15] Id. at 215-216.

[16] Id. at 226-228.

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[17] Id. at 227-228.

[18] Id. at 228.

[19] Id. at 56.

[20] Id. at 39-66.

[21] Id. at 66.

[22] Id. at 84.

[23] Id. at 22.

[24] Id. at 29-31.

[25] Id. at 245.

[26] Id. at 267.

[27] Id. at 267-268.

[28] Id. at 284-290.

[29] Rendered by Judge Celso R.L. Magsino, Jr.; id. at 291-296.

[30]Penned by Associate Justice Vicente S.E. Veloso, with Associate Justices Stephen C.
Cruz and Myra V. Garcia-Fernandez concurring; id. at 299-321.

[31] Id. at 322-325.

[32] Id. at 327.

[33] id. at 13.

[34] Mendoza, et al. v. Mayor Villas, et al., 659 Phil. 409, 417 (2011).

[35] Lanuza, Jr. v. Yuchengco, 494 Phil. 125, 133 (2005).

[36] 723 Phil. 776 (2013.

[37] Rollo, p. 129.

[38] Republic Act No. 10142 or the Financial Rehabilitation and Insolvency Act of 2010,

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Section 4(gg).

[39] Amores v. House of Representatives Electoral Tribunal, et al., 636 Phil. 600, 610 (2010)

[40] 745 Phil. 651 (2014).

[41] Id. at 657.

[42] Rollo, p. 209.

[43]Republic Act No. 10142 or the Financial Rehabilitation and Insolvency Act of 2010,
Section 4(gg).

[44] 804 Phil. 195 (2017).

[45] Id. at 201.

[46] Id. at 203.

[47] Id. at 207-208.

[48] Id. at 470-472.

[49] G.R. No. 219683, January 23, 2018.

[50] Id., citing Ty v. Banco Filipino Savings and Mortgage Bank, 689 Phil. 603, 614 (2012).

[51]Golden (Iloilo) Delta Sales Corp. v. Pre-Stress Int'l. Corp., et al., 596 Phil. 26, 39
(2009); Jarantilla v. Jarantilla, et al., 651 Phil. 13, 27 (2010).

[52]Phil. Asset Growth Two, Inc., et al. v. Fastech Synergy Phils., Inc., et al., 788 Phil. 355,
378 (2016).

[53] 715 Phil. 420 (2013).

[54] Id. at 378-379.

[55] 788 Phil. 355 (2016).

[56] Id. at 379-380.

[57] Id. at 375-377.

[58] Rollo, p. 92.

[59] Id. at 14-15.

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[60] Id. at 104.

[61] Id. at 229-235.

[62] Id. at 230-233.

[63] Id. at 251.

[64] Id.

[65] 781 Phil. 95 (2016).

[66] Id. at 112-115.

CONCURRING OPINION

PERLAS-BERNABE, J.:

I concur. This petition assailing the Decision[1] dated July 7, 2009 of the Court of Appeals
(CA) which upheld the Rehabilitation Plan of respondent Fortuna Paper Mill & Packaging
Corporation (Fortuna) should be dismissed on the ground of mootness in view of the
termination of the rehabilitation proceedings before the Court could resolve the instant
petition. A case or issue is considered moot and academic when it ceases to present a
justiciable controversy because of supervening events, rendering the adjudication of the case
or the resolution of the issue without any practical use or value.[2]

This notwithstanding, the Court, in a number of instances,[3] discussed the substantive merits
of the case otherwise moot and academic whenever it found the need to formulate controlling
principles to guide the bench, the bar, and the public in view of the public interest involved.
[4] In my view, and as the ponencia deemed fit, this case falls under the foregoing exception,
considering the substantive issues raised concerning the technical subject of corporate
rehabilitation and some of its working parameters.

As background, the basic facts of this case are as follows: on June 21, 2007, Fortuna filed a
Petition[5] for corporate rehabilitation (rehabilitation petition) before the Regional Trial
Court of Malabon, Branch 74 (RTC), with prayer for the issuance of a Stay Order, docketed
as SEC. Case No. S7-002-MN. It alleged, among others, that eighty-eight percent (88%) of
its total obligations is owing to petitioner Metropolitan Bank & Trust Company (MBTC)[6]
which is secured by real estate and chattel mortgages over properties owned by it and its
affiliates, and are now overdue.[7] It claimed that rehabilitation is the best option for the
company, as well as its creditors because any forced liquidation would give the unsecured
creditors a mere P0.51[8] for every peso of exposure.[9]
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Under the proposed Rehabilitation Plan,[10] Fortuna intends to resume its operations which
had ceased since the second quarter of 2006 due to the labor problems it encountered,[11] that
was followed by the disconnection of its supply of electricity.[12] Essentially, the elements of
the business plan are: (a) debt moratorium for two (2) years, restructuring of interest rates
and waiver of penalty charges;[13] (b) the infusion of investment by Polycity Enterprises Ltd.
(HK; Polycity) which had indicated its interest to acquire fifty percent (50%) or more of the
company's stocks that is valued at least P70 Million;[14] and (c) entry into the business of
condominium development on a 13,503 square meter-property owned by its sister company,
Classic Frames Corp., located in Malabon, Metro Manila (Malabon property), which project
shall be enrolled with the Pag-IBIG City Program backed with a Payment Guarantee Bond.
[15]

Despite opposition, the rehabilitation petition was given due course, and the Rehabilitation
Plan, which was found to be feasible and viable, was eventually approved by the RTC in an
Order[16] dated December 20, 2007. The said Order was subsequently affirmed by the CA in
the assailed July 7, 2009 Decision.

Hence, the instant petition filed by MBTC, contending that: (a) Fortuna is not qualified to
file a rehabilitation petition[17] under the 2000 Interim Rules of Procedure on
Corporate Rehabilitation[18] (Interim Rules); and (b) there are no material financial
commitments to support the Rehabilitation Plan.[19] Subsequently, however, MBTC
informed the Court that the RTC had already terminated the rehabilitation proceedings in
SEC. Case No. S7-002-MN,[20] which was affirmed by the CA.[21] Thus, based on this
supervening event, MBTC prayed that the instant petition be dismissed on the ground of
mootness.

As earlier mentioned, although this case had indeed become moot and academic due to the
termination of the rehabilitation proceedings, it would be highly instructive to delve into the
aforementioned substantive issues to guide the bench, the bar, and the public in
understanding some of the working parameters attending corporate rehabilitation.

I.

FORTUNA IS QUALIFIED TO FILE FOR CORPORATE REHABILITATION.

As presently defined, "[r]ehabilitation shall refer to the restoration of the debtor to a

condition of successful operation and solvency, if it is shown that its continuance of
operation is economically feasible and its creditors can recover by way of the present value
of payments projected in the plan, more if the debtor continues as a going concern than if it is
immediately liquidated."[22] Under Section 1,[23] Rule 4 of the Interim Rules, any debtor
who foresees the impossibility of meeting its debts when they respectively fall due may file a
petition for corporate rehabilitation before the RTC. In this case, MBTC insists that Fortuna
is not qualified to file a rehabilitation petition under the Interim Rules since the phrase "who
foresees the impossibility of meeting its debts when they respectively fall due" must be
construed to mean that an element of foresight is required, and that the debts of the
corporation should not have matured.[24] It maintains that "[t]he unequivocal language of the

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[said] provision demonstrates a manifest intent on the part of its drafters to make a
distinction between debtors already in default and those who are not, to the end that only
debtors in the latter class may petition to be placed under rehabilitation."[25]

In MBTC v. Liberty Corrugated Boxes Manufacturing Corporation[26] (Liberty), wherein

Fortuna's sister company was involved, the Court had already struck down MBTC's proposed
interpretation as contradicting provisions of the Interim Rules, which contemplate situations
where a debtor corporation may already be in default,[27] and defeats the clear purpose of the
lawmakers.[28] The Court declared that a corporation with debts that have already matured
may still file a petition for corporate rehabilitation under the Interim Rules because: (a) the
condition that triggers rehabilitation proceedings is not the maturation of a corporation's
debts but the inability of the debtor to pay these; and (b) the definition under the Interim
Rules is encompassing; hence, there should be no distinction whether a claim has matured or
otherwise.[29]

II.

THE REHABILITATION PLAN IS NOT SUPPORTED BY THE REQUIRED

MATERIAL FINANCIAL COMMITMENTS, AS WELL AS A PROPER
LIQUIDATION ANALYSIS, AND CONSEQUENTLY, IS NOT FEASIBLE.

Under Section 5,[30] Rule 4 of the Interim Rules, the rehabilitation plan shall include the
material financial commitments supporting the same. In this case, MBTC faults the CA for
relying on the highly contingent and speculative proposal given by Polycity – the alleged
White Knight investor – prior to the latter's conduct of due diligence on Fortuna and while
funding negotiations were still placed on hold. It pointed out that while the rehabilitation
receiver concluded that the said proposal was a distinct possibility, his recommendation in
favor of Fortuna's rehabilitation was precisely conditioned on the completion of such due
diligence by Polycity and the corresponding cash infusion within nine (9) months from
approval of the rehabilitation plan.[31]

In BPI Family Savings Bank, Inc. v. St. Michael Medical Center, Inc.,[32] the Court explained
that "nothing short of legally binding investment commitment/s from third parties is
required to qualify as a material financial commitment."[33] However, no such binding
investment was presented by Fortuna in this case. Clearly, Polycity only presented an offer to
purchase that is contingent upon, among others, "the conduct of financial, operational,
legal[,] and technical due diligence which yield satisfactory results to be completed within
sixty (60) days of Fortuna's acceptance of [its] letter."[34] Significantly, Polycity's Letter of
Intent[35] expressly states that: (a) the same "does not constitute a binding commitment on
either party with respect to any transaction and is not intended to be and does not constitute a
legal binding obligation;" and (b) "[n]o legal binding obligations will be created, implied or
inferred until and unless a definitive agreement is executed and delivered by the parties."[36]
While Polycity's then President, Anthony Sher,[37] informally affirmed his company's
readiness to make the capital infusion subject to the resolution of the legal issues surrounding
Fortuna's rehabilitation,[38] the same was made at a time when it has not yet completed its
due diligence on Fortuna,[39] and has yet to ascertain satisfactory results that would convince
it to invest. This hardly fits the description of a material financial commitment which would
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inspire confidence that the rehabilitation would turn out to be successful. Tellingly, even
prior to the filing of the instant petition before the Court, Fortuna filed a Motion to Amend
Rehabilitation Plan[40] dated March 5, 2009 acknowledging that it was unable to come up
with the scheduled payments in the first year of rehabilitation, on the ground, among others,
that Polycity had not pushed through with its planned investment, leaving it with the
necessity to raise its own funds,[41] but without indicating how it shall proceed therewith. It
is worthy to emphasize that while there is no absolute certainty in rehabilitation, the sacrifice
that the creditors are compelled to make can only be considered justified if the restoration of
the corporation's former state of solvency is feasible due to a sound business plan with an
assured funding,[42] which is lacking in this case.

Neither can Fortuna's projected entry into the realty business be considered as an acceptable
material financial commitment. This is because no formal agreement was Shown to have
been forged between it and its alleged joint venture partner, Oroquieta Properties, Inc.
(Oroquieta). Similar to Polycity, Oroquieta only provided a proposal to develop Fortuna's
properties, which was likewise still subject to the conduct of due diligence and the further
execution of a formal Memorandum of Agreement "after the rehabilitation court has given its
approval"[43] of Fortuna's petition. In any event, capital infusion from this source is
speculative at best, as there is no reasonable expectation that the Projects would be
completed within the assumed target dates for completion in order to realize any income
therefrom. As aptly pointed out by MBTC, Pag-IBIG's "guarantee lies only on the sale of the
completed units but not on the means of sustaining the funds needed to complete the
Project."[44]

But this is not all. In addition, Fortuna's rehabilitation petition lacks a proper liquidation
analysis that would guide the Court in ascertaining if Fortuna's creditors can recover by way
of the present value of payments projected in the plan, more if it continues as a going
concern than if it is immediately liquidated, which is a crucial factor in a corporate
rehabilitation case.[45] The Interim Rules state that the rehabilitation plan shall include "a
liquidation analysis that estimates the proportion of the claims that the creditors and
shareholders would receive if the debtor's properties were liquidated."[46] However,
while a liquidation analysis[47] was attached to the rehabilitation petition, the same was not
accompanied by any explanation or reliable market information to back the assumptions[48]
made by Fortuna's management as to the recoverable amount of its assets, and thus,
preventing the Court from determining the feasibility of the plan.

The failure of the Rehabilitation Plan to state any material financial commitment to support
rehabilitation, as well as to include a proper liquidation analysis, renders the CA's
considerations for approving the same[49] as actually unsubstantiated, and hence,
insufficient to decree Fortuna's rehabilitation. It bears to stress that the remedy of
rehabilitation should be denied to corporations that do not qualify under the Interim Rules.
Neither should it be allowed to corporations whose sole purpose is to delay the enforcement
of any of the rights of the creditors.[50]

At any rate, the financial documents presented by Fortuna clearly fail to demonstrate the
feasibility of its proposed Rehabilitation Plan. In this case, the interim financial statements
(FS) as of May 31, 2007 show that: (a) while Fortuna has substantial total assets, a large
portion thereof is comprised of Property and Equipment,[51] the bulk of which are mortgaged

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to MBTC;[52] (b) Fortuna's cash operating position[53] was insufficient to meet its maturing
obligations as its current assets were substantially lower than its current liabilities;[54] and (c)
when compared vis-a-vis Fortuna's audited FS[55] for the three (3) immediately preceding
years, certain accounts were omitted[56] or added[57] without any explanation or justification.
Moreover, no basis was provided for the projected sales,[58] expenses, and net incomes for
the ten (10)-year period[59] following the filing of the rehabilitation petition, such as
forecasts of independent industry analysts, and Fortuna's performance in previous years[60]
does not indicate that its sales grow annually at such rate.

Verily, Fortuna's rehabilitation plan should have shown that it has enough serviceable assets
to be able to continue its business operation. In fact, opposed to this objective, the
rehabilitation plan still requires: (a) the acquisition of a "coal-fired boiler for an estimated
P15,000,000.00"[61] to replace the bunker-fired boiler[62] in order "to reduce its production
costs and be competitive with its rivals;"[63] and (b) the settlement of the liabilities to Manila
Electric Company[64] and its suppliers "essential for resumption of operations"[65] – that
would further sacrifice its cash flow. Without a definite source of financing, both internally
and externally, or enough cash and other current assets to enable it to resume operations, it is
difficult to perceive the feasibility of rehabilitating Fortuna's business.

The purpose of rehabilitation proceedings is not only to enable the company to gain a new
lease on life but also to allow creditors to be paid their claims from its earnings, when so
rehabilitated. Therefore, the remedy of rehabilitation should be denied to corporations
whose insolvency appears to be irreversible and whose sole purpose is to delay the
enforcement of any of the rights of the creditors, which is rendered obvious by: (a) the
absence of a sound and workable business plan; (b) baseless and unexplained
assumptions, targets and goals; and (c) speculative capital infusion or complete lack
thereof for the execution of the business plan,[66] as in this case.

Thus, Fortuna's rehabilitation petition should have been dismissed not only due to its failure
to comply with the key requirements under the Interim Rules – i.e., to state any material
financial commitment to support the rehabilitation, as well as to include a proper liquidation
analysis – but also to establish the feasibility and viability of the Rehabilitation Plan.
However, since the rehabilitation proceedings had already been terminated, the foregoing
observations are purely academic as this case has already been mooted and therefore, must
be dismissed.

ACCORDINGLY, I vote to DISMISS the petition on the ground of mootness.

[1]
Rollo, pp. 39-66. Penned by Associate Justice Arturo G. Tayag with Associate Justices
Noel G. Tijam (now a Member of this Court) and Normandie B. Pizarro, concurring.

[2] See Ayala Land, Inc. v. Heirs of Lactao, G.R. No. 208213, August 8, 2018.

[3]See Mahinay v. Gako, Jr., 677 Phil. 292 (2011); Republic v. Manila Electric Company,
723 Phil. 776 (2013).

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[4] See Genuino v. De Lima, G.R. Nos. 197930, 199034 & 199046, April 17, 2018.

[5] Rollo, pp. 85-97.

[6] See id. at 92.

[7] See id. at 90-91.

[8] Should be P0.54. See Liquidation Analysis; CA rollo, p. 212.

[9] Rollo, p. 95.

[10] CA rollo, pp. 109-141.

[11] See id. at 123.

[12] See rollo, p. 13.

[13] See CA rollo, p. 131-132.

[14] See id. at 134. See also Polycity's letter of intent dated March 14, 2007; rollo, p. 104.

[15] See CA rollo, pp. 135-136.

[16] See rollo, pp. 226-228. Penned by Assisting Judge Leonardo L. Leonida.

[17] See rollo, pp. 21-23.

[18] A.M. No. 00-8-10-SC, November 21, 2000 (Re: Interim Rules of Procedure on Corporate
Rehabilitation).

[19] See rollo, pp. 29-31.

[20] In its Decision dated November 21, 2011.

[21]The CA denied Fortuna's Rule 43 petition in its Decision dated August 30, 2013 in CA-
G.R. SP No. 124062. Penned by Associate Justice Vicente S.E. Veloso with Associate
Justices Stephen C. Cruz and Myra V. Garcia-Fernandez, concurring.

Fortuna moved for reconsideration, but subsequently withdrew the motion on the ground
that the petition has been overtaken by unspecified events which rendered the petition
moot and academic, and admitting the correctness and validity of the November 21,
2011 RTC Order terminating the rehabilitation proceedings.

In a Resolution dated April 30, 2014, the CA granted Fortuna's motion to withdraw.

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[22]
See Section 4 (gg) of Republic Act No. 10142, entitled "AN ACT PROVIDING FOR
THE REHABILITATION OR LIQUIDATION OF FINANCIALLY DISTRESSED
ENTERPRISES AND INDIVIDUALS," OTHERWISE KNOWN AS THE "FINANCIAL
REHABILITATION AND INSOLVENCY ACT (FRIA) of 2010" (July 18, 2010).

[23]Section 1. Who May Petition. – Any debtor who foresees the impossibility of meeting its
debts when they respectively fall due, or any creditor or creditors holding at least twenty-five
percent (25%) of the debtor's total liabilities, may petition the proper Regional Trial Court to
have the debtor placed under rehabilitation.

[24] See rollo, p. 21.

[25] See id. at 22-23.

[26] G.R. No. 184317, January 25, 2017, 815 SCRA 458.

[27] See id. at 472.

[28] See id. at 479.

[29] See id. at 471-472.

[30] Section 5. Rehabilitation Plan. – The rehabilitation plan shall include (a) the desired
business targets or goals and the duration and coverage of the rehabilitation; (b) the terms
and conditions of such rehabilitation which shall include the manner of its implementation,
giving due regard to the interests of secured creditors; (c) the material financial
commitments to support the rehabilitation plan; (d) the means for the execution of the
rehabilitation plan, which may include conversion of the debts or any portion thereof to
equity, restructuring of the debts, dacion enpago, or sale of assets or of the controlling
interest; (e) a liquidation analysis that estimates the proportion of the claims that the
creditors and shareholders would receive if the debtor's properties were liquidated; and
(f) such other relevant information to enable a reasonable investor to make an informed
decision on the feasibility of the rehabilitation plan. (Emphases supplied)

[31] See rollo, pp. 26-27.

[32] 757 Phil. 251, 266 (2015).

[33] Id. at 268.

[34] Rollo, p. 104; underscoring supplied.

[35] Id.

[36] See id.

[37] See id.

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[38] During an interview with the rehabilitation receiver; see id. at 212.

[39] See id. at 215.

[40] Id. at 229-236.

[41] See id. at 230.

[42] See Wonder Book Corp. v. Phil. Bank of Communications, 691 Phil, 83, 100 (2012).

[43] See rollo, pp. 219-220.

[44]See MBTC's Reply (Re: Comment dated 28 May 2010) dated September 20, 2010; id. at
266.

[45]See BPI Family Savings Bank, Inc. v. St. Michael Medical Center, Inc., supra note 32, at
269.

[46] See Section 5, Rule 4 of the Interim Rules.

[47] CA rollo, p. 212.

[48] Among the assumptions made was the inclusion of the account "Estimated receivable"
from Liberty on the realizable value of its land pledged in the amount of P84,414,200.00 (see
CA rollo, p. 212) in the computation of free/available assets. However, the records are bereft
of showing that Liberty, which is also undergoing rehabilitation, had already sold or assigned
the said land to Fortuna.

[49] I.e., (a) Fortuna's assets, which are well in excess of its liabilities, would be even more
valuable if Fortuna is preserved as a going concern rather than if it were liquidated outright
(see rollo, p. 57); (b) Polycity's investment is a viable and realistic option (see id. at 58), and
the approval of Fortuna's rehabilitation plan, as well as the lower court's close oversight of its
implementation through the receiver "could well expedite the entry of Polycity" (see id. at
61); and (c) the proposed business of condominium development is a viable venture for the
debtor and a good source of cash flow for its operations (see id. at 63).

[50]Philippine Asset Growth Two, Inc. v. Fastech Synergy Philippines, Inc., 788 Phil. 355,
378 (2016).

[51] See rollo, p. 125.

[52] Comprising the following:

Buildings P 131,521,000.00
Machineries/Chattel 144,643,000.00
Land 36,772.000.00
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Total assets mortgaged P 312,936,000.00 (see id. at 90-91)

Total Porperty & Equipment (PPE) ÷ 409,349,354.62 (see id. at 125)
Percentage of mortgaged properties in 76.45%
the PPE
=====

[53] "A company's cash position refers specifically to its level of cash compared to its
pending expenses and liabilities, x x x. In general, a stable cash position means the company
can easily meet its current liabilities with the cash or liquid assets it has on hand. Current
liabilities are debts with payments due within the next 12 months." (See footnote 54 in BPI
Family Savings Bank, Inc. v. St. Michael Medical Center, Inc., supra note 32, at 269, citing
Kokemuller, "Neil, "Cash Flow vs. Cash Position," Chron. <
http://smallbusiness.chron.com/cash-flow-vs-cash-position-51149.html> [visited November
5, 2018])

[54] Fortuna's current assets and current liabilities as of May 31, 2007 are as follows:

Total Current Assets P 3,605,395.50

Total Current Liabilities 14,896,762.24 (see rollo, p. 125)

[55]The audited financial statements atfached to the rollo and the CA rollo were not
accompanied by any explanatory notes.

[56] The account "Finished Goods Inventory" which was valued at P50,316,867.49 in the
audited Balance Sheet as of December 31, 2006 (see rollo, p. 121) does not appear in the
Interim Statement of Cost of Goods Manufactured and Sold (see id. at 127) and the Current
Assets section of the Interim Balance Sheet (see id. at 125) without a showing that the same
was sold and converted to cash or receivables, or otherwise disposed through a dacion en
pago. Neither was it shown why the beginning balance of the "Raw Materials Inventory" in
the Interim Statement of Cost of Goods Manufactured and Sold was reduced to
P6,500,700.50 (see id. at 127) when the same was valued at P50,780,900.50 (see id. at 121)
in the audited Balance Sheet as of December 31, 2006.

[57] The account "Utilities Payable" in the amount of P30,354,849.60 corresponding to the
liability to MERALCO was suddenly reported in the Interim Balance Sheet (see id. at 125)
when the same was never reflected in Fortuna's audited balance sheets for the years 2005
(see id. at 115) and 2006 (see id. at 122), despite the compromise agreement entered with
MERALCO on July 2005 (see id. at 88).

[58] Year 2 Sales P 379,848,960.00

Year 1 Sales 323,872,960.00 (see CA rollo, p. 135)
Increase in Sales P 55,976,000.00
÷ 379,848,960.00
0.1474
x 100%
Sales growth percentage 14.74%
=======
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[59] See id.

[60] Considering the growth of 3.35% in sales from 2004 to 2005 computed as follows:

2005 Sales P 92,842,658.02 (see rollo, p. 113)

2004 Sales - 89,730,395.13 (see id. at 107)
Increase in Sales P 3,112,262.89
÷ 92,842.658.02
0.0335
x 100%
Sales growth percentage 3.35%
======

[61] See CA rollo, p. 134.

[62] See id. at 120.

[63] See id. at 134.

[64] Amounting to P30,354,849.60; see id. at 101.

[65] See id. at 134.

[66] See Philippine Asset Growth Two, Inc. v. Fastech Synergy Philippines, Inc., supra note
50, at 383-384.

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